Krugman: Wrong On Health Again

Here is something you don’t see very often. In The New York Times on the very same day (last Monday) are two radically different claims about how health care markets work. A column by Paul Krugman dismisses the idea that competition among for-profit insurers benefits consumers. The other column by widely respected health economist Austin Frakt summarizes research showing that competition matters a great deal.

Krugman cites a Congressional Budget Office study which he claims shows that “privatization had nothing to do with” saving money for seniors in the Part D Medicare drug program. In fact, the report says just the opposite. Competition matters a lot, says the CBO. The more competitors, the lower the premium for drug coverage.

Frakt cites five additional studies showing that the more competitors there are, the lower the premiums and/or the greater the benefits. These include studies by:

“UnitedHealthcare, the nation’s largest insurer with 84 million policies in force in 2010, did not participate in any [of the Obamacare] exchanges. Had it done so, Ms. Dafny and colleagues estimated that premiums would have been 5.4 percent lower. Had all insurers in each state’s 2011 individual market participated in that state’s exchange in 2014, premiums would have been 11 percent lower, saving $1.7 billion in federal premium subsidies.”

On another issue, Medicare is now spending about $1,000 less per enrollee than what the CBO projected just four years ago. Why is that? Krugman writes:

and the link is to a Sarah Kliff post, discussing a study by Kaiser Family Foundation researchers Tricia Neuman and Juliette Cubanski. Does he think the readers aren’t going to check that out?

Here is what the column actually says about the impact of Obamacare:

"This theory, as Neuman and Cubanski acknowledge, is still somewhat speculative. Some of these programs didn't start until 2012, which makes it difficult to attribute the revised estimates in 2010 and 2011 to health reform.”

As I wrote at the Health Affairs blog recently, the Obama administration has spent millions of dollars on pilot programs and demonstration projects to find out how to make health care delivery more efficient. The result? Three separate Congressional Budget office reports have concluded that none of this is working, or at least not working very well. (See here, here and here.) Ditto for the huge investment the administration has made in Accountable Care Organizations (ACOs):

“The experience of the pilot ACO projects has been dismal. A total of 5.3 million Medicare beneficiaries are now in Medicare ACOs. Yet in their first year, only 29 percent of the physician-led ACOs and only 20 percent of the hospital-sponsored ACOs turned a “profit.” And among those that did so, the results were fairly mediocre.”

Yet ironically, the one place in Medicare where some of these ideas are panning out is in the for-profit sector that Krugman derisively refers to as “privatization.” Again, from Health Affairs:

“As I have pointed out before, (see here and here) many of the ideas that aren’t working in the pilot programs both here and in other countries actually are working in some of our best Medicare Advantage (MA) plans — especially in ones that are contracting with doctor associations. IntegraNet, for example, routinely lowers costs by about 25 percent, while raising quality at the same time.”

Finally, what really is the reason why Medicare spending is lower than what was expected? Krugman writes:

“… the slowdown in Medicare helps refute one common explanation of the health-cost slowdown: that it’s mainly the product of a depressed economy, and that spending will surge again once the economy recovers. That could explain low private spending, but Medicare is a government program, and shouldn’t be affected by the recession.”

As it turns out, and Krugman would know this if he actually paid attention to the field, the slowdown in health care spending is worldwide. That is, spending on health care, including the government programs of other countries has also slowed. And that certainly isn’t because of Obamacare.

I am one of the nation’s leading thinkers on health policy. I am the President of the Goodman Institute for Public Policy Research, a Senior Fellow at the Independent Institute and author of the widely acclaimed book, Priceless: Curing the Healthcare Crisis. The Wall Street...